Salary vs Dividend 2026 Year-End: RRSP Room and the 2027 Credit

Reviewed by Bader A. Chowdry, CPA, CA, LPA on October 30, 2026

For the salary vs dividend 2026 year-end decision, two enacted facts tilt Ontario owner-managers toward paying enough 2026 salary to fill RRSP room: the 2027 RRSP limit is $35,390, built only from earned income, and Ontario’s non-eligible dividend credit falls to 1.9863% in 2027 under Bill 97, which has Royal Assent. Dividends you were going to pay anyway lean toward December 2026.

This guide is for owners of a Canadian-controlled private corporation (CCPC) in Mississauga and across Ontario who set their own pay before December 31. It covers what each choice does to 2027 RRSP room, CPP, the dividend tax credit and the filing calendar, and where the decision turns on facts only your own file holds.

What changed for the 2026 year-end salary vs dividend decision?

Three things are different from a normal year-end. First, the RRSP dollar limit steps up from $33,810 for 2026 to $35,390 for 2027, per the CRA’s published limits table. Your 2026 salary, paid and received by December 31, is what earns that 2027 room.

Second, Ontario cut the credit on non-eligible dividends. Bill 97, the Plan to Protect Ontario Act (Budget Measures), 2026, has received Royal Assent as S.O. 2026, c. 2. As enacted, its Schedule 15 amends the Taxation Act, 2007 so the credit becomes 15.2283% of the gross-up for taxation years ending after December 31, 2026. Ontario’s own dividend tax credit page shows the enacted result: 2.9863% of the taxable amount for 2020 to 2026 and 1.9863% effective for 2027.

Third, the same Act set Ontario’s small business deduction rate at 9.3% for days after June 30, 2026, in force from July 1, 2026. Against Ontario’s general rate of 11.5%, that leaves a provincial small business rate of 2.2%. With the federal net small business rate of 9% on the CRA corporation tax rates page, the combined rate on active business income up to the $500,000 business limit is 11.2% after June 30, 2026. A year that straddles July 1 is prorated by days.

Read together, the two Ontario changes move in step: a lower provincial rate on small business income, and a lower provincial credit on the non-eligible dividends paid out of that income. For an owner-manager, the practical effect is a timing question about which side of January 1 each payment lands.

Why salary is the only route to 2027 RRSP room

The Income Tax Act, s.146(1) sets new RRSP room each year as the lesser of the dollar limit and 18% of the prior year’s earned income. Earned income counts income from an office or employment, business income and a short list of other sources. Taxable dividends are not on that list.

So a shareholder who takes only dividends in 2026 earns no new RRSP room for 2027. To reach the full $35,390, 2026 earned income needs to be at least $196,612, because $35,390 divided by 18% is $196,611.11. Salary above that level adds no more room.

Timing matters as much as the amount. Under s.5(1) of the Income Tax Act, employment income for a year is the salary and other pay received in that year. A bonus the corporation declares in December but pays in 2027 is 2027 employment income for you, and it builds 2028 room, not 2027 room. If the corporation wants the deduction in 2026 and you want the income in 2027, that is the accrued-bonus route, covered in the firm’s guide to accruing the bonus and paying it within the allowed window.

For the full RRSP mechanics, including how unused room carries forward, see Your 2026 Salary Sets Your 2027 RRSP Room.

What salary costs: CPP, payroll and T4 deadlines

Salary brings payroll obligations that a dividend does not. For 2026 the CPP rate is 5.95% for the employee and the same for the employer, on earnings between the $3,500 basic exemption and maximum pensionable earnings of $74,600, per the CRA’s CPP rates table. That is up to $71,100 of contributory earnings and a maximum of $4,230.45 each, so a salary at or above $74,600 costs $8,460.90 of CPP between you and the corporation.

That contribution buys CPP pension entitlement; whether that is worth it to you is a planning question, not a rule. CRA has not published a 2027 CPP row yet, so this article gives no 2027 CPP figures.

The calendar that follows a December salary:

• Source deductions on December 2026 pay: a regular remitter remits by the 15th of the next month, per the CRA remittance due-date page. That is Friday, January 15, 2027.
• T4 slips: due the last day of February after the year, per the CRA T4 filing page. February 28, 2027 is a Sunday, so the slips are on time on Monday, March 1, 2027.
• RRSP contribution for the 2026 tax year: CRA’s contribution-year page runs the window to the 60th day of the following year, which is Monday, March 1, 2027.

The corporation deducts the salary it pays on its T2 return, and you report it from your T4 on your T1. Whether EI premiums also apply depends on whether your employment is insurable, which turns on your shareholding and other facts, so confirm it rather than assume either way. A shareholder who has never been on payroll has more set-up to do than one who already is. Start in November rather than the last week of December.

Dividends: why December 2026 beats January 2027 for the same dollar

A non-eligible dividend, the kind a CCPC pays out of income taxed at the small business rate, is grossed up by 15% on your return, per the CRA T5 slip instructions. The federal credit is 9.0301% of that grossed-up taxable amount. Ontario’s credit on the same amount, as enacted by Bill 97, is 2.9863% for 2026 and 1.9863% for 2027.

The federal side is the same either side of January 1. The Ontario side drops by one percentage point of the taxable amount. So a dividend you would pay anyway costs more personal tax if it is paid on January 4, 2027 than on December 30, 2026, because the enacted rates are set by year: 2.9863% through 2026, 1.9863% effective for 2027.

For the line-by-line December versus January arithmetic, see Ontario Non-Eligible Dividend Tax Credit 2027: Dec vs Jan. One caution applies: pulling a dividend forward also pulls the personal tax on it forward by a year, so the cash-flow cost of paying earlier belongs in the same conversation.

How an LPA frames the decision: a year-end rule and its failure mode

The decision rule Insight Accounting CPA works from for a December 31 year-end: first decide whether you want 2027 RRSP room. If you do, pay enough 2026 salary, actually received by December 31, to reach the earned income that fills it, and no more for RRSP purposes. Take the rest of what you need personally as dividends, and if a dividend is coming anyway, consider paying it before January 1, while Ontario’s 2.9863% credit applies and before the enacted 1.9863% rate takes effect.

The named failure mode is the “bonus on paper” error. An owner declares a large December bonus to create RRSP room, but the cash leaves the corporation in January. Under s.5(1) the bonus is 2027 income, so it creates 2028 room, the 2027 room they wanted does not exist, and an RRSP contribution made on that assumption in early 2027 can be an over-contribution. The corporate deduction and the personal inclusion land in different years, which can be intended, but it has to be chosen, not stumbled into.

Another exception: some owners should not chase RRSP room at all. If the corporation’s after-tax income is better left inside it, or the owner already holds large unused RRSP room from past years, more salary may add CPP and payroll cost without a matching benefit. That is a facts question.

Illustrative example

Illustrative example, with stated assumptions: one shareholder, a December 31 year-end CCPC, all income taxed at the small business rate, Ontario resident, no other income. The owner wants full 2027 RRSP room and another $50,000 for personal use.

• Salary: $196,612 paid and received by December 31, 2026. At 18% that is $35,390.16, capped at the $35,390 limit, so 2027 room is full. CPP on that salary is the 2026 maximum, $4,230.45 from the owner and $4,230.45 from the corporation.
• Dividend: a $50,000 non-eligible dividend has a taxable amount of $57,500 after the 15% gross-up. The federal credit is $5,192.31 in either year.
• Ontario credit, at the rates enacted by Bill 97: if paid in December 2026, $57,500 at 2.9863% is $1,717.12; if paid in January 2027, when the enacted 1.9863% rate is in force from January 1, $57,500 at 1.9863% is $1,142.12. The difference is $575.00 of Ontario credit on the same cash.

Those are the credit figures only, not a full tax calculation: brackets, surtax, the corporation’s own position and any other income change the final answer. The point of the example is the direction of each lever, not a forecast of anyone’s bill.

What to bring to a year-end pay conversation

Before December, have these ready so the salary and dividend split can be set with real numbers:

• Your 2026 Notice of Assessment showing current unused RRSP room.
• Year-to-date salary already paid in 2026, and whether a CRA payroll account exists.
• The corporation’s projected 2026 active business income and whether it is above or below the $500,000 business limit.
• Any dividends already paid in 2026 and whether they were designated eligible or non-eligible.
• Family members on payroll or holding shares, since that changes the analysis and the payroll rules.

One concrete action this week: check your RRSP room on your Notice of Assessment, then decide whether the 2026 salary target is $196,612, something lower, or nothing.